From the U.S. Government Accountability Office, www.gao.gov Transcript for: Watchdog Report #16: Status of Government Assistance to AIG Audio interview by GAO staff with Orice Williams Brown, Director, Financial Markets and Community Investment Associated Report Number: GAO-10-475 Released on: April 27, 2010 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the Government Accountability Office. It's April 27th, 2010. Since March 2008, the Federal Reserve and Treasury have made more than 182 billion dollars available to assist the American International Group or AIG. A group led by Orice Williams, a director in GAO's Financial Markets and Community Investment team, recently examined the impact of this assistance and AIG's progress in repaying its debt to the federal government. GAO analyst Jeremy Cluchey sat down with Orice to learn more. [ Jeremy Cluchey: ] The federal government has made over 182 billion dollars available to AIG since March 2008. What was the intention of this federal assistance? [ Orice Williams Brown: ] The intention was primarily to avoid the systemic fallout from the failure of AIG. AIG initially used the assistance to address its ongoing liquidity crisis. After problems in the market started to emerge and AIG experienced a number of credit rating downgrades, it was forced to pay additional collateral to its counterparties on certain derivatives contracts it had entered into. It also faced a number of redemptions of securities that it had loaned through a securities lending program. And in order for it to provide the cash as those borrowers returned the securities to AIG, it was forced to seek external sources of liquidity. Unable to find or procure those sources in the private market, the Federal Reserve stepped in to provide AIG additional assistance. [ Jeremy Cluchey: ] A lot of attention has been paid to some of the riskier offerings of AIG's Financial Products Corporation. What did GAO find AIG is doing to help mitigate the risk posed by some of these products? [ Orice Williams Brown: ] AIG Financial Products has been one of AIG's primary areas of focus in its restructuring and unwinding efforts. GAO has been monitoring AIG's progress in unwinding AIG financial products by focusing on four areas, specifically, the number of outstanding trade positions, the gross notional values of derivatives positions outstanding, the number of businesses or risk books, and number of employees. AIG Financial Products has experienced decreases in all areas since September 2008 and we found that for the last 2 quarters, these decreases continued in every area except the number of risk books. However, we do know that AIG focused its initial efforts on unwinding its most risky books of business. [Jeremy Cluchey: ] Is this new report related to the letter from Federal Reserve Chairman Bernanke about GAO reviewing its decision to provide assistance to AIG? [ Orice Williams Brown: ] It is not. This particular report is an outgrowth of a report that we issued in September where GAO developed a number of indicators in order for Congress and the public to monitor the ongoing condition of AIG as well as its--the status of its repayment to the federal government for the assistance. The letter that we received from Chairman Bernanke was followed by two additional request letters that we received from Congress and we have started work to begin to address those two congressional request letters. [ Jeremy Cluchey: ] You mentioned the status of AIG's repayment of its federal assistance. What sort of progress has AIG made in this regard and what does GAO conclude about the future prospects for AIG's repayment of its debt to the federal government. [ Orice Williams Brown: ] We have noted that AIG has continued to make some progress in repaying its debt to the federal government. We also note that AIG continues to be very reliant on the assistance provided by the government. Given that the government now has a greater equity stake in AIG than outstanding debt, the government's ability to fully recoup the assistance will be determined by the long-term health and viability of AIG and the company's success in selling businesses as it restructures its operations. These are all areas that we will continue to monitor in our ongoing work. [ Background Music ] [Narrator:] To learn more, visit GAO's Web site at gao.gov, and be sure to tune in to the next edition of GAO's Watchdog Report for more from the congressional watchdog, the Government Accountability Office.